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China survey shows expectations for policy easing on rise

June 19, 2012

BEIJING: Growing numbers of Chinese bankers expect Beijing to ease monetary policy further in the third quarter to spur flagging economic growth, although more households think consumer prices will rise, according to a quarterly survey by the People’s Bank of China published today.

The survey showed that 32.4% of bankers believe monetary policy will be relaxed. That was 25.7 percentage points higher than in the previous survey, which measured expectations for the second quarter.

It also showed 35.6% of residents expected consumer prices to rise in the third quarter, 4.2 percentage points higher than in the previous survey, which could limit the room for more policy easing.

However, consumers are more willing to spend, indicating that Beijing’s fresh incentives to encourage purchases of energy-efficient automobiles and home appliances are starting to work.

Chinese banks have quickened the pace of lending, with an index measuring loan approvals hitting 47.8% in the second quarter, the highest reading since 2010, according to the quarterly survey.

However, an index measuring overall loan demand fell to the lowest since at least 2009, reinforcing weakness in the world’s second-largest economy, which is widely expect to grow at its slowest rate in more than three years.

Chinese banks extended 793 billion yuan (US$124.7 billion) in fresh loans in May, up from 682 billion yuan in April and stronger than 720 billion yuan expected by the financial markets, suggesting the government’s fast-tracking of infrastructure projects was creating loan demand as opposed to there being a pick-up in broader economic activity.

China lowered interest rates on June 7, its first such move since the depths of the global crisis, on top of three cuts in banks’ required reserves ratio (RRR) to pump money into the economy.

It is expected to cut RRR by another 100 basis points in the rest of 2012, according to the latest Reuters poll.

Weak demand

The central bank’s survey in the second quarter also showed that export order index climbed to 48.8%, up from 46.9% in the first quarter. However, another index measuring corporate expectations on export orders slipped to 50.9% versus 52.1% in the previous quarter.

The domestic order index edged down to 50.2% in the second quarter, versus 50.5 percent in the first three months, while the index measuring corporate expectations on domestic orders also declined to 51.9% this quarter from 53.5% in the previous quarter, the central bank said.

On the household front, the survey showed Chinese urban residents are less happy about consumer prices, their incomes and jobs in the second quarter versus three months earlier, but they still planned some major purchases.

The central bank said 15.1% of the 20,000 households polled planned to buy cars in the next three months, the highest since the survey started in 1999.

It also showed that 68.5% of residents regarded current home prices as “unacceptably high,” and 20.4% expected home prices to rise even higher in the third quarter.

Expectations of dearer home prices are prompting some people to buy now. Thus, 15.7% of residents plan to buy a home in the next three months, 1.6 percentage points more than in the previous survey.

Official data yesterday showed Chinese home prices fell in May for the eighth straight month, but the pace moderated, fuelling talk that the real estate market may be bottoming out and that recent monetary stimulus could set the stage for a rebound.

While not a base-case scenario for most economists, fears of a sharp property price drop have added to concerns over the outlook for the world’s second-largest economy as it struggles with weaker demand abroad and at home.

-Reuters

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